Suppose the financial crisis and the Great Recession have returned the United States to a more normal sequence of business cycles. Suppose we are closer to the long-run (33 cycles between 1854 and 2009) average where expansions were shorter (about three years as opposed to the post-1961 average of six years) and contractions a bit longer (18 months) than the 12-month contrac- tions that are the post-1961, seven-cycle norm?
By the long-run standard or even by the full post–World War II (1945–2009) standard that saw expansions averaging 58.4 months, the current expansion, at 49 months (54 months by year-end, when growth is widely forecast to be 3 percent), is getting close to its end.
The standard
deviation of postwar expansions is 33.4 months, so we are well within the window for onset of a recession. Based on the full long-run National Bureau of Economic Research (NBER) sample, with an average of 38.7 months, the current expansion is just two months
from being a third longer than its expected length.
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Key points in the Outlook
- Economic indicators and long-term business cycle patterns suggest that the United States may be in another reces- sion by early 2014.
- Two post–financial crisis economic swoons have been curbed with easy money and fiscal stimulus, but flat retail sales, slowing employment growth, and a faltering housing sector may prevent these strategies from working again.
- To prolong the expansion, Congress and the Fed should enact near-term fiscal stimulus, lower tax rates and broaden the tax base, deregulate the financial sector, and focus on maintaining low and stable inflation.
Postcrisis Employment Growth
During the current expansion, since June 2009, employment growth has been substandard and volatile. (See figure 3) During five post-1961 expansions through 1990, employment growth averaged between 2.5 and 3 percent, excepting the brief one-year July 1980 through July 1981 expansion, when the average was just 0.41 percent.
The 10-year March 1991–March 2001 “golden age” expansion saw employment growth averaging a some what lower 1.91 percent. Economic growth was supported by higher productivity growth that, in turn, was no doubt enhanced by labor-saving technological changes includ- ing those embodied in the information technology (IT) revolution and its associated improvements in communi- cation. After 1985, employment growth during expansions continued to fall. A fuller understanding of the steady deceleration of employment growth during recoveries would surely benefit us now as we struggle with a tepid labor market.
The last two expansions have seen much slower aver- age year-over-year employment growth, just 0.66 percent during the 2001 to 2007 “jobless recovery” and today virtually zero growth during the June 2009 to June 2013 “more jobless recovery.” (See figure 3.) The very low employment growth numbers since the 2001 expansion reflect a stretch of negative monthly year-over-year employment numbers, another indicator that labor growth suffers from aggressive layoffs even during the early phases of expansions. Further, the current expansion’s employment growth, while tepid, has been unusually volatile.
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